Gordon Brown has announced that the Government will seek to alleviate the financial problems that he usually denies it has by selling off state assets. £3 billion is to be raised over the next couple of years by selling the Tote, the Dartford Crossing, the Channel Tunnel rail link and some other odds and sods.
The Tories are supportive but critical; the Lib Dems are dismissive -- Vince Cable wins the award for best comment by referring to the plan as "this car boot sale" -- and the press, as ever, are just confused. Stephanie Flanders, the BBC economics correspondent, is typical, describing the asset disposal as a measure to cut the budget deficit. NO IT BLEEDING ISN'T! It's an attempt to reduce the borrowing requirement in the near term by flogging off assets that may have considerable long-term value. It may actually increase the deficit.
Take the Tote, for example. It makes money -- even the Government can't figure out a way to lose money catering to the British public's gambling obsession. Once it's sold, the Government won't receive any of the profits. Even if the proceeds of the sale are used to pay down debt, the interest savings are likely to be smaller than the foregone profits, so the net result is a higher deficit. (Chris Dillow has looked at the math for the Tote sale in more detail here).
The same very likely goes for the Dartford Crossing and maybe even the Channel Tunnel link -- indeed, if it isn't true, the assets are probably unsellable. And it's not hard to imagine how the access charges for them will shoot up once they're in the hands of Ferrovial or some faceless private equity fund. (Here's a thought: the charge for cars on the Second Severn Crossing is now over £5, 24 hours a day, compared to £1.50 on the Dartford Crossing, with no charges at night. Plenty of scope there, I'd say).
Then of course there's the question of whether this is the right time to sell these assets if you want to maximise the returns to the taxpayers. Brown's previous disastrous exploits in flogging off the UK's gold reserves are being cited gleefully in some quarters. More pertinently, the problems BAA has experienced in trying to find a buyer for Gatwick Airport are a good indication that the market for assets of this type may not be strong at the moment.
I'm not here to suggest that there's any good reason for the state to own a betting company, but flogging it off right now is a damned poor substitute for a proper fiscal plan. I'm much less sure about selling bridges and railways -- the taxpayer has taken all the financing and completion risk in these projects, and may now see them pass into private hands just so that a desperate government can do some pre-election window dressing.
2 comments:
This sale will surely weaken the government's financial position. To the private sector the assets are worth the value of their income stream discounted at their discount rate. Given its ability to borrow more cheaply the government must have a lower discount rate and hence the assets have a higher NPV in public hands.
Add to this that the riskiness for the private sector must be higher since incomes from these assets will depend on government policy. Peter
That's what I meant when I wrote that the assets would be unsaleable unless they were profitable. As someone wrote in one of the papers, it's wrong to describe this as "selling the family silver". The family silver is basically useless, whereas these are productive assets.
I could demur from your first sentence, but only if the asset sale were big enough to alter investor perceptions of the government's financial position. These assets are far too small to do that.
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